India’s Satyam rebounds, but progress is slow

The company posted lackluster revenue growth in the quarter ended Dec. 31

Indian outsourcer, Satyam Computer Services, which is on the recovery after a corporate scandal, said that revenue and net profits grew in the third quarter ended Dec. 31.

The company, which was once India’s fourth largest outsourcer, is far from reaching to the revenue and profit levels of its competitors, such as Tata Consultancy Services, Infosys Technologies, and Wipro. All three companies reported strong revenue and profit growth in the quarter ended Dec. 31, benefiting from a recovery in the outsourcing market.

Satyam said on Monday that revenue had grown to 12.8 billion rupees (US$281 million) up by about 3 percent from the previous quarter, while net profit had more than doubled to 590 million rupees from 233 million rupees in the previous quarter. The results are in accordance with Indian accounting rules.

The company is now stable at the $1 billion to $1.1 billion revenue level, and there isn't an exodus of customers any more, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune, India.

Satyam has also started focusing on select markets, but these efforts have not yet translated into high revenue and profits growth for the company, although the outsourcing market is bouncing back, he added.

A comparison with the company’s revenue and profit figures in the same quarter in the previous year is not available as it was exempted by India’s Company Law Board from publication of financial results for the quarters ended from December 31, 2008 to March 31, 2010.

The company’s operating margins are still very thin, at less than 4 percent, Apte said. Going by current revenue levels, the company show a revenue drop of about 8 percent in its fiscal year ending March 31, 2011, he added.

Satyam plunged into a financial crisis in 2009 over an accounting scandal in which revenue and profit had been inflated for several years. Now, Satyam plans to merge with another Indian outsourcer, Tech Mahindra, which acquired a dominant 43 percent stake in Satyam in 2009 as part of a revival package for the company. Minority shareholders have demanded that the merger should be delayed until the company’s full recovery, and when the valuations of equity are reasonable.

The company reported in November last year that it had returned to profits in the quarters ended June 30 and Sept. 30.

The company is still saddled with a lot of potential liabilities and costs, including a claim by some 37 companies who say that they want to be repaid 12 billion rupees that they had allegedly advanced to Satyam.

The company also faces a class action suit in the U.S. alleging violations of the U.S. federal securities laws. The company delisted last year from the New York Stock Exchange after it failed to publish its results according to U.S. accounting rules within a stipulated period.

Its profits in the quarter were whittled down by 533 million rupees in exceptional items relating to restructuring costs, forensic investigation and litigation support, and erosion in value of assets in subsidiaries.

However, these are risks that were already taken into account earlier, and are not likely to affect the company’s operations or customer confidence, Apte said.

The company added 764 staff in the quarter taking the total to 28,832 at the end of the quarter. The company had 217 customers at the end of the quarter.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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Tags outsourcingbusiness issuesservicesfinancial resultsrestructuringoffshoringwiprosatyam computer servicesTech MahindraInfosys TechnologiesTata Consultancy Services

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